Why Companies Detest Customers

For a while in the 1990s, gurus on how to make a company great pushed aside traditional management chestnuts on command and control, mass advertising, and shareholder value. Instead new recipes on customer service marketing were all the rage.

“The customer is king” was the motto.

Company execs, especially CEOs looking to score in the newly fashionable customer sensitivity ratings, signed up for every manner, and style of customer surveys, slogans, service metrics, and training courses. Even some emboldened company bosses launched no-excuses warranties where customer claims for defective products, late deliveries, pricing mistakes, and even customer errors in applications were instantly acknowledged with prostrate apologies. To resolve customer claims, cash and credits were issued without fuss or feathers.

Of course, such altruism only endured as long as the economy was robust, margins strong, and serious competition threatened to woo the most lucrative customers. Once recessions hit, and business prospects turned gloomy, infatuation with customers was replaced by the cost accountants’ favorite bunker calculation, “cost to serve,” with cost casting the biggest shadow.

Unconditional deference to customers looked good on paper, especially when espoused by general management savants like Peter Drucker. He also invented modern management commandments such as management-by-objective, and decentralization.

Drucker may have been most famous for new age notions such as “knowledge workers” and “human capital”. But in everyday practice, management in the 1960s, 70s, and 80s was dominated by the WWII generation, where blood-and-guts was the norm; where cost control, units per direct labor hour, daily production quotas, Taylorist scientific management, and industrial engineering time-and-motion studies left little luxury for indulging in customer whims.

By the late 1980s and 90s, boomers inherited virtually all the senior management and CEO positions from their collective fathers -- the WWII vets. We had one foot in the old and one in the new with lessons from burgeoning MBA curricula that often belittled the erstwhile truths from our fathers.

But the old style was still in our DNA. Thus, if customers were considered at all, we paid them scant lip service. Embedded wisdom was “business would be swell without all those annoying customers”. The best we could grudgingly muster was the “annual customer appreciation week”. What happened during the other fifty-one?

Could customers be smarter than our double-degreed engineers, accountants armed with HP12C calculators, and marketers first trained as pavement-pounding sales reps? Of course not. While we knew, yet conveniently ignored, the maxim that revenues depend on customers -- the wellhead of all cash flows -- we treated customers like single transaction names without faces, who would repeat their purchases not because they’re delighted with our service attention, but because our product design, and delivery is brilliant, and they have no better place to go.

In other words, hubris triumphs over humility. And more importantly, customers can’t really be trusted. They’re fickle, impulsive, and finally disloyal. Succumbing to treating customers as partners is a sign of emotional weakness; only soft-in-the-head managers would let customers gain the upper hand.

To wit, the quarterly operations review meeting when the first intrepid division general manager announced to his peers -- and rivals -- that he would institute an unconditional customer guarantee. After the derisive throat-clearing subsided, the first salvo would arrive from the CFO, warning that returns and credits honoring phony customer claims would swamp cost of sales. Next the corporate engineering VP would openly question the product design and manufacturing competence of that division’s product managers who couldn’t attain zero defects. Then the CEO would remind everybody they were on the hook for the quarterly EPS guidance to security analysts, and it wasn’t a good time to launch unproven and dubious customer incentives.

LL Bean may be the only company where customer-first policies have been the norm for decades. Of course, it helped that founder Leon L Bean, his grandson Leon Gorman and extended family have owned the company, avoiding the pressure on quarterly cash flow and operating income from public stockholders, or private equity investors.

LL bet his company by initiating a 100% satisfaction guarantee some 100 years ago. Yet even LL Bean has announced a few weeks ago that it is considering modifying or dropping altogether its venerable return policy.

Trust has its limits.

Customers ultimately have the final word. Yet companies punished for lousy service, and mediocre products, can survive for years before suffering bankruptcy.

And so, “customer is king” is empty jargon. Low price, with product and service quality that is good enough, is king. And in turn low price compels low cost. Anything else is a distraction, and added cost for which customers aren’t much interested, and won’t pay.

So when a company wants you to believe they are “committed to customer satisfaction”, remember they’re only committed to what gets you to the cash register. Neither a fleeting thought of love, nor a penny more.

For a while in the 1990s, gurus on how to make a company great pushed aside traditional management chestnuts on command and control, mass advertising, and shareholder value. Instead new recipes on customer service marketing were all the rage.

“The customer is king” was the motto.

Company execs, especially CEOs looking to score in the newly fashionable customer sensitivity ratings, signed up for every manner, and style of customer surveys, slogans, service metrics, and training courses. Even some emboldened company bosses launched no-excuses warranties where customer claims for defective products, late deliveries, pricing mistakes, and even customer errors in applications were instantly acknowledged with prostrate apologies. To resolve customer claims, cash and credits were issued without fuss or feathers.

Of course, such altruism only endured as long as the economy was robust, margins strong, and serious competition threatened to woo the most lucrative customers. Once recessions hit, and business prospects turned gloomy, infatuation with customers was replaced by the cost accountants’ favorite bunker calculation, “cost to serve,” with cost casting the biggest shadow.

Unconditional deference to customers looked good on paper, especially when espoused by general management savants like Peter Drucker. He also invented modern management commandments such as management-by-objective, and decentralization.

Drucker may have been most famous for new age notions such as “knowledge workers” and “human capital”. But in everyday practice, management in the 1960s, 70s, and 80s was dominated by the WWII generation, where blood-and-guts was the norm; where cost control, units per direct labor hour, daily production quotas, Taylorist scientific management, and industrial engineering time-and-motion studies left little luxury for indulging in customer whims.

By the late 1980s and 90s, boomers inherited virtually all the senior management and CEO positions from their collective fathers -- the WWII vets. We had one foot in the old and one in the new with lessons from burgeoning MBA curricula that often belittled the erstwhile truths from our fathers.

But the old style was still in our DNA. Thus, if customers were considered at all, we paid them scant lip service. Embedded wisdom was “business would be swell without all those annoying customers”. The best we could grudgingly muster was the “annual customer appreciation week”. What happened during the other fifty-one?

Could customers be smarter than our double-degreed engineers, accountants armed with HP12C calculators, and marketers first trained as pavement-pounding sales reps? Of course not. While we knew, yet conveniently ignored, the maxim that revenues depend on customers -- the wellhead of all cash flows -- we treated customers like single transaction names without faces, who would repeat their purchases not because they’re delighted with our service attention, but because our product design, and delivery is brilliant, and they have no better place to go.

In other words, hubris triumphs over humility. And more importantly, customers can’t really be trusted. They’re fickle, impulsive, and finally disloyal. Succumbing to treating customers as partners is a sign of emotional weakness; only soft-in-the-head managers would let customers gain the upper hand.

To wit, the quarterly operations review meeting when the first intrepid division general manager announced to his peers -- and rivals -- that he would institute an unconditional customer guarantee. After the derisive throat-clearing subsided, the first salvo would arrive from the CFO, warning that returns and credits honoring phony customer claims would swamp cost of sales. Next the corporate engineering VP would openly question the product design and manufacturing competence of that division’s product managers who couldn’t attain zero defects. Then the CEO would remind everybody they were on the hook for the quarterly EPS guidance to security analysts, and it wasn’t a good time to launch unproven and dubious customer incentives.

LL Bean may be the only company where customer-first policies have been the norm for decades. Of course, it helped that founder Leon L Bean, his grandson Leon Gorman and extended family have owned the company, avoiding the pressure on quarterly cash flow and operating income from public stockholders, or private equity investors.

LL bet his company by initiating a 100% satisfaction guarantee some 100 years ago. Yet even LL Bean has announced a few weeks ago that it is considering modifying or dropping altogether its venerable return policy.

Trust has its limits.

Customers ultimately have the final word. Yet companies punished for lousy service, and mediocre products, can survive for years before suffering bankruptcy.

And so, “customer is king” is empty jargon. Low price, with product and service quality that is good enough, is king. And in turn low price compels low cost. Anything else is a distraction, and added cost for which customers aren’t much interested, and won’t pay.

So when a company wants you to believe they are “committed to customer satisfaction”, remember they’re only committed to what gets you to the cash register. Neither a fleeting thought of love, nor a penny more.